Why Buy GOOG?

Here’s an interesting perspective from a former Google employee, wondering why people buy Google’s stock.

His point is that usually you buy stock in a company because you get something, such as maybe a) dividends, b) some controlling interest in what the company does with your money, c) some kind of special privilege for owning the stock, d) some kind of information as to what the company is doing or planning. But with Google, you get none of this. The current owners of the company have 10 times the shares privately held as there are shares publically available. They don’t pay dividends, and say they never will. They’re no less tight-lipped to you about the company’s plans than they are to non-shareholders. So why buy GOOG?

I agree, for the most part, but when you buy stock in a company, if you’re not doing it for the dividends or control, really the only thing you have left is the hope that you can buy it at a (relatively) low price, hold it for a while, and sell it at a higher price, thus making some kind of profit. (Of course, there are other things that can be involved, but I’m talking about J. Random Investor here.) For me, I don’t think that’s enough to warrant buying stock in a company. If my only hope for a return was a stock-price increase, I’d rather put my money into bonds, or mutual funds that balance investments to increase share price. Day-traders might find the buy low/sell high sort of thing appealing, but for a company like Google, it seems too risky if you’re looking for a long-term investment.

Granted, if you had bought stock only a short time after the IPO, when it was going for under $150, you could potentially have a bundle now, as the stock peaked a couple months ago over $450. Even if you sold now, you’d at least double your investment (ignoring taxes and fees).

But how could you know that back then? At the time of the IPO, conventional wisdom seemed to be that it would explode for a short time after the IPO, and then stabilise to something under $100. Of course, everything is a risk with the stock market, and some people might have been willing to take more of a risk. Though the fact that it did hit $450, but is now down around $340, seems to indicate that it definitely has the potential to drop if/when investors seem to finally think the company is over-valued.

Anyway, what do I know… My experience with such things is minimal.